Natural disasters and governmental aid: Is there a charity hazard?

Arbeitspapier

In the aftermath of natural disasters, governments frequently provide financial aid for affected households. This policy can have adverse effects if individuals anticipate it and forgo private precaution measures. While theoretical literature unequivocally suggests this so called "charity hazard", empirical studies yield ambiguous results. Drawing on rich survey data from German homeowners, we analyze charity hazard for different flood precaution strategies, namely insurance uptake and non-financial protection measures, and different flood risk areas. Our results indicate a substantial charity hazard in the insurance market for individuals residing in flood-prone areas. In contrast, we find a positive correlation between governmental aid and non-financial protection measures. Moreover, our results suggest that insurance and non-financial protection measures are rather complements than substitutes. Finally, we provide suggestive evidence that status-quo bias might play an important role for insurance uptake.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 17-065

Classification and Topics

• Classification: Wirtschaft ; Climate; Natural Disasters and Their Management; Global Warming ; Multiple or Simultaneous Equation Models: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Other Demand
• Subject: Adaptation ; Flood Protection ; Flood Insurance ; Objective Flood Risk ; Charity Hazard

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Andor, Mark ; Osberghaus, Daniel ; Simora, Michael
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/172325
• URN: urn:nbn:de:bsz:180-madoc-438784
• Last update: 10.03.2025, 11:42 AM CET